Prospective Employee and New Hire Screening: Legal Landmines and Best Practices

Jorge Lopez Shareholder Littler Miami Office jlopez@littler.com 305.400.7504

Michael Lehet Shareholder Littler New York Office mlehet@littler.com 212.583.2685

Overview

The recruitment and hiring process is an exciting time for employers and employees alike. It is also one fraught with legal landmines that can adversely impact employers, sometimes before the employment relationship starts and, in some cases, well after it ends. While employers seek to find the best talent, a seemingly conflicting array of federal and state laws force them to walk a legal tightrope between “not doing enough” and “going too far.” This situation is particularly true when it comes to screening prospective employees and new hires. Through the lens of real world examples, this webinar will navigate these issues, including the “do’s,” the “don’ts,” and the best practices for maximizing your hiring process while minimizing legal exposure.

Agenda

• Criminal Background Checks – Value of Criminal Background Checks – Increasing Challenges to Criminal Background Checks – EEOC Guidance and Employer Best Practices

• Drug Testing in the Workplace – Rationale and Options – Multistate Patchwork – Recommendations and Best Practices

• Verification of Identity and Work Authorization – ICE Worksite Enforcement – DOJ Actions Against Employers – Impact of Recent Executive Action

Criminal Background Checks

Why Are Criminal Background Checks Valuable?

Criminal background checks are not a panacea but if done properly provide a number of benefits to employers, including: 1. Improving the quality and

reputation of your workforce 2. Decreasing the risk of

workplace violence and other conduct that negatively impacts operations (e.g., theft)

3. Reduces the risk of liability for negligent hiring

The Negligent Hiring Nightmare

Elder care employer hires employee with significant exposure to resident/patient population. The employer fails to conduct an effective background check and does not uncover a violent criminal offense in another state several years earlier. The employee subsequently abuses and either injures or kills a resident/patient. • Among other claims, the employer is sued for negligent hiring. The

cornerstone of the plaintiff’s case is the botched background check: • Did the employer have a duty to the resident/patient? • Did the so-called standard of care include a more thorough

background check? • If the employer had done a more thorough background check, would

this incident have occurred? • By failing to do a more thorough background check, was it

reasonably foreseeable this incident would occur? This issue can extend to an endless number of workplace situations.

The Challenges: Setting The Stage

• U.S. Equal Employment Opportunity (“EEOC”) has stepped up challenges to employer criminal background check practices, including two large-scale class actions filed in June 2013.

• Employers face additional legal hurdles based on state and local laws, including “ban the box” restrictions and other limits on the use of criminal history in the hiring process.

• Employers are also contending with a surge of class action litigation under the federal Fair Credit Reporting Act (FCRA) based on gathering criminal history and other records through third parties when conducting background checks on applicants and employees.

EEOC Challenges And Settlements

Criminal background checks are a high priority for the EEOC. The recurrent theory is that even though the employer applied its criminal background checks uniformly, the checks had a disparate negative affect on certain groups of employees. Recent private conciliations underscore this point: • $3.13M settlement covering up to 300 applicants; EEOC challenged

practice of not hiring based on arrests and/or convictions for certain offenses

• $450,000 settlement paid to charging party and class of approximately 80 applicants denied employment because of employer’s blanket “no felony” conviction policy

• Applicant denied employment based on criminal record resulting in nationwide investigation and 5-year agreement that included revisions to criminal background check policy and required training

Pending EEOC Litigation

• Class Action Against Automobile Manufacturer (U.S. District Court, District of South Carolina) – Background check policy allegedly automatically

screened out individuals convicted of certain crimes: • Manufacturing drugs and weapons • Assault and battery • Spousal abuse • Rape • Murder • Convictions involving “theft, dishonesty,

and moral turpitude”

– Allegedly no distinction between misdemeanors and felonies, and not case-by-case assessment

Pending EEOC Litigation

• Class Action Against National Discount Retailer (U.S. District Court, Northern District of Illinois) – Background check policy allegedly excluded

applicants without case-by-case assessment – Employer allegedly withdrew job

offer after an employee began working as a cashier and stocker due to a 6-year-old felony conviction for possession of controlled substance

– Employer allegedly terminated employment of employee despite errors in background check process

Updated Enforcement Guidance On Arrest And Conviction Records (4/25/12)

• Method: (1) disparate treatment challenge; and (2) disparate impact challenge.

• Rationale: National data supports finding that criminal record exclusions have a disparate impact based on race and national origin.

• Expectation: Employers increasingly facing the burden of establishing that criminal background checks “job related and consistent with business necessity” – Nature of the position sought or held – Nature and gravity of the offense – Time since offense and/or completion of sentence

• Other Considerations: Individualized assessment now expected.

Individualized Assessment

According to the EEOC, a proper individualized assessment will include consideration of the following: 1. Circumstances surrounding offense 2. Number of other offenses for which convicted 3. Age at time of conviction 4. Length and consistency of employment

before and after offense 5. Performance of same type of work,

post-conviction, and whether other incidents of criminal conduct

6. Rehabilitation efforts 7. Character references 8. Whether individual bonded under

federal, state, or local program

Key Takeaways From EEOC Guidance

• Decisions based on arrests as opposed to convictions will likely face greater scrutiny from EEOC

• Employers that do not “ban the box” in applications will likely face greater scrutiny from EEOC

• Blanket exclusions based on criminal record will leave an employer open to potential exposure

• Employers that do not undertake individualized assessments will likely face challenges from EEOC

• No safe harbors or specific policies that will guarantee insulation from EEOC scrutiny

Open Questions

1. What time limits apply to certain offenses? 2. How closely must the offense relate to the duties of the job? 3. Are there any circumstances in which an employer may

apply blanket exclusions? “An employer policy or practice of excluding individuals from particular positions for particular specific criminal conduct within a defined time period . . . is a targeted exclusion.” “Such a screen would need to be narrowly tailored to identify criminal conduct with a demonstrably tight nexus to the position in question. In other words . . .

A Note On So-called “Ban The Box”

• Beyond the EEOC expressing disfavor of inquiring of criminal backgrounds during the application process, several states and municipalities have laws that also address this issue:

• If you operate in any of these locations, be sure to partner with legal counsel to ensure you are fully compliant.

STATE BAN THE BOX LOCAL BAN THE BOX

District of Columbia Baltimore, MD

Hawaii Buffalo, NY

Illinois Newark, NJ

Massachusetts Philadelphia, PA

Minnesota Rochester, NY

New Jersey San Francisco, CA

Rhode Island Seattle, WA

Drug Testing in the Workplace

Overview And Rationale

• The U.S. Department of Labor has noted: “Alcohol and drug abuse creates significant safety and health hazards and can result in decreased productivity and poor employee morale. It also can lead to additional costs in the form of health care claims, especially short-term disability claims.”

• Reasons for drug testing, include: – Avoid hiring individuals who use illegal drugs – Deter employee from abusing drugs – Identify and appropriately refer employees with drug abuse

problems – Provide a safe workplace for employees – Protect the public and build confidence in your organization

Timing Of Drug Testing

1. Pre-Employment 2. Reasonable Suspicion 3. Post-Accident 4. Random 5. Periodic 6. Return-To-Duty

Methods For Drug Testing

• The most common specimens for new-hire and employee drug testing include: – Urine – Hair – Blood – Saliva

• Drug testing typically checks for 5 illicit drugs: – Amphetamines (meth, speed, crank, ecstasy) – Cocaine (coke, crack) – Opiates (heroin, opium, codeine, morphine) – Phencyclidine (PCP, angel dust) – THC (cannabinoids, marijuana, hash)

The Numbers

• American Management Association Survey – 70% conduct drug testing

• 63% conduct pre-employment drug tests • 54% conduct drug tests during employment

– 94% do not hire conditional employees/prospective employees who test positive

– 63% refer employees who test positive to counseling and treatment

– 22% terminate employees who test positive

The Multistate Patchwork

• Although certain specific situations may implicate federal law (e.g., Americans with Disabilities Act), no federal law prohibits drug testing in the workplace and some in fact require it for certain lines of work. Drug testing, including what employers can do, should do, and may not do is generally a matter of state law.

• Some jurisdictions are more favorable/less restrictive of drug testing. Some are the opposite. “Pro-Drug Testing” Laws “Anti-Drug Testing” Laws

Alabama Connecticut Alaska Maine Arizona Minnesota Arkansas Montana Florida Oklahoma Georgia Puerto Rico Idaho Rhode Island Iowa Vermont Louisiana Mississippi Ohio South Carolina Tennessee Utah

The Multistate Patchwork

• Compare Utah – Does not restrict the types of testing, including pre-employment drug

testing – Test is presumed valid – No employer liability for taking action based on result unless in bad faith

based on false-positive – Certain requirements (e.g., written policy)

• With Vermont – No pre-employment testing permitted unless in conjunction with physical

examination – No random testing allowed – No periodic (announced) testing allowed – Post-accident testing limited to reasonable suspicion situations – Certain requirements (e.g., mandatory 10-days advance notice before

pre-employment test, employers must offer rehabilitation to first-time positive result employees)

The Multistate Patchwork

• Hair testing prohibited: – Hawaii, Iowa, North Carolina, Oregon, and

Puerto Rico • Saliva testing prohibited:

– Hawaii, Iowa, Louisiana, Maine, Maryland, North Carolina, and Oklahoma

• Onsite testing prohibited: – Minnesota, Nevada, New York, Puerto Rico,

and Vermont

The Multistate Patchwork

• Some states offer workers’ compensation premium reductions to employers that conduct drug testing, including, in certain states, pre-employment testing: – Alabama, Arkansas, Florida, Georgia, Idaho, Mississippi, Ohio,

South Carolina, Tennessee

• In virtually every state, there is a disqualification from or limitation on workers’ compensation if injury incurred due to drug impairment. – Exceptions include Illinois, Massachusetts, Michigan, Montana,

and Washington.

• There is approximately a 50/50 split between states in which drug use disqualifies an employee from unemployment compensation and states in which it does not.

The Multistate Patchwork

• 23 states and the District of Columbia currently have laws legalizing marijuana in some form. Virtually all legalize medical marijuana, but some (e.g., Washington, Colorado) have legalized marijuana for recreational use.

• Despite these protections, the new marijuana laws are generally not a license to use marijuana in the workplace or to appear at work impaired, and many expressly state that an employer need not accommodate marijuana use in the workplace. Nonetheless, it is important that employers heed these state laws by not taking blanket actions against employees, including prospective employees, simply because they use marijuana in accordance with state laws.

Recommendations And Best Practices

1. Drug testing should take place after the employer extends a conditional offer of employment. The applicant then agrees to submit to the test and acknowledges he or she will not be hired if there is a positive test result.

2. There is a legitimate concern that employees may prepare for (and pass) pre-employment drug tests by ceasing drug use before the examination. As a result, employers may consider testing probationary employees on an unannounced basis. REMEMBER THAT NOT ALL STATES ALLOW IT.

3. If drug testing is part of your pre-employment process, it is a best practice to provide written notice of the intent to conduct drug testing at the time the individual applies for a job. Because it is both required in certain states and a smart practice, it is recommended that employers have a written policy on drug testing, including discussion of pre-employment testing. It is recommended to post the company’s drug testing policy in a conspicuous location for both applicants and employees to view.

Recommendations And Best Practices

4. Under the federal Fair Labor Standards Act (FLSA), employers are generally not required to compensate for time spent on pre-employment drug testing. Once the individual is hired, however, any subsequent drug tests mandated by the employer are compensable hours worked

5. In some states, such as New Jersey, employers are forbidden from making a prospective employee pay for his or her drug test unless it is for a specific, qualifying position. As a general rule, this practice is not recommended in any event.

Verification of Identity and Work Authorization

Verification Of Identity And Work Authorization

• These two generally go hand-in-hand during the I-9 process, during which employees affirm identity and work authorization, and also present documents establishing both.

• Employers are obligated to take the necessary steps to confirm employee identity and work authorization but not engage in discriminatory conduct. Two federal agencies underscore this fine line:

U.S. Immigration and Customers Enforcement, Homeland Security Investigations Unit (ICE)

U.S. Department of Justice, Office of Special Counsel for Immigration-Related Unfair Employment Practices (DOJ)

• Investigative arm of U.S. Department of Homeland Security

• Conducts “worksite enforcement” audits to confirm (a) employees fully comply with the federal Form I-9 requirements, and (b) employers do not knowingly employ unauthorized workers

• Conducts criminal investigations, including of employers (e.g., harboring undocumented workers)

• Enforces the federal laws prohibiting employers from engaging in discriminatory practices, including:

o Citizenship or immigration status discrimination

o National origin discrimination o Document abuse (e.g., requesting

additional or different documents than required during I-9 process)

Verification Of Identity And Work Authorization

• States likewise have their own sets of laws on these issues. – For example, the Legal Arizona

Workers Act not only requires E-Verify, but prohibits employers from “knowingly or intentionally” hiring or continuing to employ unauthorized labor.

– Discrimination laws, including in California, extend protections to prohibit discriminatory practices during the employment eligibility verification process.

ICE Worksite Enforcement Audits

http://www.ice.gov/factsheets/i9-inspection

Administrative Penalties

• Penalties for a first-time offense with substantive/uncorrected technical violations range from $110 to $935 per missing or deficient I-9 form depending on the percentage of deficient forms. This range shifts upward for second and third offenses.

• Penalties for knowingly hiring or continuing to employ unauthorized workers range from $375 to $2,725 per undocumented employee depending on the percentage of such workers within your employee pool. This range also shifts updated for second and third offenses.

• ICE may decrease or enhance the penalty depending on the following: – Business size (+/‒ 5%) – History of violations (+/‒ 5%) – Good faith (+/‒ 5%) – Seriousness of violation (+/‒ 5%) – Unauthorized workers (+/‒ 5%)

Violation Basics

• Technical Violations – Minor paperwork violations unlikely to result in hiring someone

without proper identity and/or work authorization (e.g., incomplete address, undated signature).

• Substantive Violations – Major paperwork violations likely to result in hiring someone

without proper identity and/or work authorization (e.g., missing form, Section 2 certification not complete)

• Knowingly Hire/Continue to Employ – Actual knowledge, which means . . . – Constructive knowledge, which means . . .

Criminal Sanctions

• Employers with a “pattern and practice” of using unauthorized labor, or with a “business model” of using unauthorized labor risk criminal penalties.

• For example: – The DOJ is currently prosecuting the owners

and managers of a northern Ohio restaurant chain with conspiracy to harbor undocumented workers, aiding and abetting the harboring of undocumented workers, and harboring undocumented workers, among other charges.

– The indictment seeks $16.47 million in gross proceeds the defendants allegedly earned as a result of the claimed offenses.

– The prosecution stemmed from a joint investigation by ICE and the U.S. Department of Labor.

ICE “Fiscal Year Accomplishments”

• Between 2007 and 2013, Notices of Inspection went from 250 to 3,127, and in 2004 there were only four (!), underscoring ICE’s increased emphasis on worksite enforcement.

• According to ICE, its 2013 “Fiscal Year Accomplishments” include: – 3,127 Notices of Inspections resulting in $15,808,365 in

administrative penalties – 452 criminal arrests tied to worksite enforcement investigations,

179 of whom were owners, managers, supervisors, or human resources employees

– Federal contract “debarment” of 277 businesses and individuals

Third Party Agents

• Business hires several “field employees” who work from home in states where the employer does not have an office, including human resources personnel. – A Minnesota PEO recently encountered a similar situation. – Through an outsourcing arrangement, the PEO contracted with a third

party that oversaw the employees’ completion of Section 1 of the I-9, reviewed original identity and work authorization documents presented by the employees, and certified to the PEO that the documents appeared genuine and related to those who presented them. The PEO, upon receiving this certification and photocopies, completed the attestation in Section 2 of the I-9, affirming under penalty of perjury that it examined the documents, the documents appeared genuine and related to the employees, and the employees were, to the best of its knowledge, authorized to work in the United States.

– The result?

Third Party Agents

• $230,000 in administrative fines sought by ICE and affirmed by a federal administrative law judge. – Why?

1. Employers can use third parties to review original Section 2 documents of identity and work authorization.

2. However, the third party must (a) review the original documents, and (b) complete the Section 2 certification. The “blended” approach followed by the Minnesota PEO – with the third party doing (a) and the PEO doing (b) – is not permitted.

3. Screening employees through E-Verify is not an excuse. In fact, the Minnesota PEO asserted this exact same defense and both ICE and the administrative law judgment rejected it.

– Words of caution when using a third party agent . . .

E-Verify Overview

• E-Verify is an Internet-based system that allows employers to confirm a new hire’s identity and work authorization by comparing information from the I-9 with Department of Homeland Security and Social Security Administration records. – Some states require E-Verify

for all or some employers – Other states have

discouraged its use – Certain federal contractors

and subcontractors must use the system

E-Verify Abuse

• Commonly seen “abuses” of E-Verify include: 1. Using E-Verify on applicants who have not yet

accepted a job offer 2. Using E-Verify on current employees hired

before the employer registered for the program 3. Using E-Verify on an employee more than once

during the same term of employment 4. Using E-Verify in a selective manner

• Why do these abuses tend to occur?

Consequences Of E-Verify Abuse

• In 2013, the DOJ investigated a Massachusetts employer and discovered it not only demanded that employees provide specific or unnecessary documents in connection with the E-Verify process but did so only to non-citizens even though the individuals were work authorized. When certain of these new hires could not produce the documentation, the employer terminated their employment.

• The DOJ concluded the employer violated federal law by discriminating against work-authorized non-citizens, resulting in a January 2014 settlement that included: – Back pay to the affected employees – More than $10,000 in administrative penalties – Mandatory anti-discrimination training – Monitoring of its employment eligibility practices for two years

Executive Action

• What about the White House’s recent executive order on immigration? – Among other measures, the executive action announced in

November 2014 would allow undocumented immigrants to remain in the country temporarily if they have lived in the United States for more than five years, have children who are U.S. citizens or legal permanent residents, and pass a criminal background check.

– Impact of the February 2015 ruling from U.S. District Judge Andrew Hanen of Texas . . .

– Regardless of the outcome, the executive action plan does not alter an employer’s employment eligibility verification obligations, and ICE is expected to continue its enforcement efforts in this area, particularly in light of the White House’s continued goal to “crack down on companies” that hire undocumented labor.

Questions & Answers

Jorge Lopez Shareholder Littler Miami Office jlopez@littler.com 305.400.7504

Michael Lehet Shareholder Littler New York Office mlehet@littler.com 212.583.2685